2018 Financial Year Tax Planning Checklist
As the end of the financial year is fast approaching, now is an important time to ensure your tax affairs are in order. This includes consideration of strategies to help manage your taxation obligations by utilising taxation incentives currently available. Outlined below are tax planning strategies and important reminders for Individuals, Superannuation Funds (and their members), Small Businesses and Investors. The following advice is general in nature and circumstances for each person will differ.
Please contact the Lombardi Partners advisor (details at the bottom of this article) to discuss further.
Opportunities for Business
Instant Asset Write‐Off
As with last year, an immediate deduction is available to Small Business Entities (SBE) for expenditure on capital assets up to $20,000 until 30 June 2018.
Note: businesses with an aggregated turnover of $10 million or less are classified as an SBE. The Government announced in the 2018 Budget that they will extend this concession into the 2019 financial year.
Businesses, subject to cashflow, may consider the deferral of invoicing until July 2018.
Review Depreciation Schedules
Review your Fixed Asset Register and write off obsolete and/or damaged depreciating assets before 30 June 2018 and claim the remaining book value as a tax deduction.
Bad Debt Write Off
Review your trade debtors list to identify any bad debts before 30 June to claim a tax deduction this financial year.
Timing of Deductions
If cash flow permits, you may consider the acquisition of deductible replacement tools, equipment and consumable supplies (office stationery, protective clothing etc.) to bring forward deductions into the 2018 financial year.
Businesses that account on an accruals basis may want to consider accruing additional expenses incurred in the current financial year to claim additional tax deductions. Some examples include:
- Commissions owing
- Salaries and wages
The value of closing stock directly affects your business’ profit, the higher the stock value the higher the profit and tax. Subject to some exceptions for Small Businesses with minimal stock, you must count your stock as at 30 June. As part of the stocktake you should identify any obsolete, old or damaged stock which can be written off or written down to its realisable value.
Company Tax Rate
As a result of changes by the Government to progressively reduce the company income tax rate from 30% to 25%, companies now with aggregated turnover of less than $25million may be eligible for the 27.5% tax rate. For the 2019 financial year, thiswill be extended to companies with aggregated turnover of less than $50 million.
Dividends and Franking Credits
Due to changes to the company tax rate noted above, it is important to note that when paying dividends during the current financial year, if your aggregated turnover is less than $25 million, that the maximum franking percentage can only be 27.5%, not 30%.
Division 7A Shareholder Loans
Shareholders or associates of private companies who have borrowed money from the company using Division 7A loan mechanisms should ensure they make any necessary minimum loan repayments before 30 June 2018. The benchmark interest rate for the 2018 financial year is 5.30%.
Ensure all June quarter super contributions are remitted to and received by the relevant superannuation funds before 30 June 2018 to claim a tax deduction in the 2018 financial year. If payment of the June quarter employee contributions occurs after 30 June but before 28 July 2018 the deduction will be claimed in the 2019 financial year. The superannuation contribution caps for the 2018 financial year are:
Super Contributions Limits 2018 Year
Contribution type: All Ages
Non‐ Concessional: $100,000
Note: your ability to make non‐concessional contributions is dependent on whether your members balance is below $1.6 million.
Superannuation Reserving Strategy
This strategy could be considered if you anticipate a significant increase in income this financial year especially due to a ‘one off’ transaction. The reserving strategy will allow you to bring forward the tax deduction for the 2019 financial year’s concessional super contribution when payment is made to the fund just before 30 June 2018.
10% Income Test
Effective 1 July 2017, the 10% test has been removed, meaning most people (including employees) under 75 years old can claim a tax deduction for personal super contributions even if they have received employer superannuation support.
Division 293 Tax
The threshold for the imposition of Division 293 Tax (additional contributions tax imposed on individuals with high taxable income) remains the same at $250,000.
Members of superannuation funds who are in pension mode, must ensure that at least their minimum pension amounts have been withdrawn by the 30th of June 2018.
Individuals and other items
If you have made a capital gain during the financial year you may want to review your wider investment portfolio and consider realising any underperforming investments and realise capital losses, subject to “wash sale’ rules to offset the capital gain and reduce tax payable in 2018.
Motor Vehicle Deductions
Where deductions for motor vehicle use are determined by reference to a business use percentage determined by a logbook, ensure you have a valid up to date logbook for the 2018 financial year. Logbooks must be maintained for a period of 12 continuous weeks and are valid for five years.
Work Related Deductions
Individuals may consider the payment of professional memberships and subscriptions before 30 June 2018 to ensure expense is deductible this financial year.
Travel Deductions for Rental Properties
Be aware that from 1 July 2017, travel expenses relating to inspecting, maintaining or collecting rent for a residential property cannot be claimed as a tax deduction.
Trust Distribution Minutes
Discretionary trusts must prepare minutes or resolutions in the form required by the ATO and their trust deed to validly distribute the trust’s income on or before 30 June of each year. Failure to do so can result in the trustee being taxed on the trust’s taxable income at 47%.
Beware of scams
There are a number of scams that target small business and individuals, particularly around tax time. Make sure to never provide sensitive information such as Tax File Numbers and bank details via email or over the phone.
Contact Lombardi Partners to discuss any of your year‐end tax planning requirements:
Joseph Lombardi, Partner: firstname.lastname@example.org
Patricia Jones, Partner: email@example.com
Phone: +61 3 9328 5300
The information in this article is general in nature and should not be considered to be advice. Clients should not act solely on the basis of material contained in this article and we recommend formal advice be sought in relation to the issues contained in this article and their application to you and your individual circumstances.